Contract
Exhibit
(d)(2)
THIS
NOTE
AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO XXXXXX PRODUCTS CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Principal
Amount: $___________ Issue
Date: December ___, 2007
FOR
VALUE
RECEIVED, XXXXXX PRODUCTS CORP., a Delaware corporation (hereinafter called
"Borrower"), hereby promises to pay to ______________________________________,
____________________________________________________________________ (the
"Holder") or order, without demand, the sum of
______________________________________________ Dollars ($__________), with
simple and unpaid interest thereon, on December ____, 2010 (the "Maturity
Date"), if not paid sooner.
ARTICLE
I
GENERAL
PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) business day grace period to pay any monetary amounts due under this Note, after which grace period and during the pendency of an Event of Default (as defined in Article III) a default interest rate of eighteen percent (18%) per annum shall apply to the amounts owed hereunder.
1.2. Interest
Rate.
Simple
interest payable on this Note shall accrue at the annual rate of six percent
(6%). Interest will be payable on December 31, 2007 and on the last business
day
of each calendar quarter thereafter and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest shall
be
due and payable, or sooner as described below. Interest will be payable in
cash,
or at the election of the Holder, provided an Event of Default or an event
which
with the passage of time or the giving of notice could become an Event of
Default, is not pending, by the Borrower’s delivery of a Note in the principal
amount of such interest payment (“Interest Note”), which Note shall be identical
to this Note, including the maturity date, except that interest on such Interest
Note must be paid in cash.
1.3. Conversion
Privileges.
The
Conversion Privileges set forth in Article II shall remain in full force and
effect immediately from the date hereof and until the Note is paid in full
regardless of the occurrence of an Event of Default. The Note shall be payable
in full on the Maturity Date, unless previously converted into Common Stock
in
accordance with Article II hereof.
1
1.4 Mandatory
Redemption.
In
the
event (i) the Borrower is prohibited from issuing shares of Common Stock upon
the conversion of this Note, (ii) upon the occurrence of any other Event of
Default that continues for more than twenty (20) business days, (iii) a Change
in Control (as defined below), or (iv) the liquidation, dissolution or winding
up of the Borrower, then at the Holder's election, the Borrower shall pay to
the
Holder ten (10) business days after request by the Holder, a sum of money
determined by multiplying the portion of the outstanding principal amount of
this Note designated by the Holder by 110% (the “Redemption Premium”) together
with all accrued interest, liquidated damages and any other sum payable to
the
Holders pursuant to this Note (the "Mandatory Redemption Payment"). The
Mandatory Redemption Payment must be received by the Holder on the same date
as
the shares of Common Stock otherwise deliverable or within ten (10) business
days after request, whichever is sooner ("Mandatory Redemption Payment Date").
Upon receipt of the Mandatory Redemption Payment, the corresponding principal
and interest hereof will be deemed paid and no longer outstanding. Liquidated
damages that have been paid or accrued for the ten day period prior to the
actual receipt of the Mandatory Redemption Payment by the holder shall be
credited against the Mandatory Redemption Payment. “Change in Control” shall
mean (x) the Borrower no longer having a class of shares publicly traded or
listed on a Principal Market, (y) the Borrower becoming a subsidiary of another
entity (other than a corporation formed by the Borrower for purposes of
reincorporation in another U.S. jurisdiction), and (z) the sale, lease or
transfer of substantially all of the Borrower’s assets. The Redemption Premium
shall be 150% in connection with a Change in Control described in clauses (y)
and (z) of the preceding sentence. “Principal Market” shall mean any of the
American
Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global
Select Market, OTC Bulletin Board, or New York Stock Exchange, whichever of
the
foregoing is at the time the principal trading exchange or market for the Common
Stock.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the principal due under this Note into
Shares of the Borrower's Common Stock, $0.001 par value per share (“Common
Stock”), as set forth below.
2.1. Conversion
into the Borrower's Common Stock.
(a) The
Holder shall have the right from and after the Issue Date of this Note and
then
at any time until this Note is fully paid, to convert any outstanding and unpaid
principal portion of this Note, and accrued interest if any, at the election
of
the Holder (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock as such stock
exists on the date of issuance of this Note, or any shares of capital stock
of
Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 2.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the
Borrower of a completed Notice of Conversion, a form of which is annexed hereto,
Borrower shall issue and deliver to the Holder within three (3) business days
after the Conversion Date (such third day being the “Delivery Date”) that number
of shares of Common Stock for the portion of the Note converted in accordance
with the foregoing. At the election of the Holder, the Borrower will deliver
accrued but unpaid interest on the Note in the manner provided in Section 1.3
through the Conversion Date directly to the Holder on or before the Delivery
Date. The number of shares of Common Stock to be issued upon each conversion
of
this Note shall be determined by dividing that portion of the principal of
the
Note and interest to be converted, by the Conversion Price.
(b) Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
share shall be $0.09.
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(c)
The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a), shall be subject to
adjustment from time to time upon the happening of certain events while this
Note remains outstanding, as follows:
X. Xxxxxx,
Sale of Assets, etc. If the Borrower at any time shall consolidate with or
merge
into or sell or convey all or substantially all its assets to any other
corporation, this Note, as to the unpaid principal portion hereof and accrued
interest hereon, shall thereafter be deemed to evidence the right to purchase
such number and kind of shares or other securities and property as would have
been issuable or distributable on account of such consolidation, merger, sale
or
conveyance, upon or with respect to the securities subject to the conversion
or
purchase right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the anti-dilution provisions of this
Section shall apply to such securities of such successor or purchaser after
any
such consolidation, merger, sale or conveyance.
B. Reclassification,
etc. If the Borrower at any time shall, by reclassification or otherwise, change
the Common Stock into the same or a different number of securities of any class
or classes that may be issued or outstanding, this Note, as to the unpaid
principal portion thereof and accrued interest thereon, shall thereafter be
deemed to evidence the right to purchase an adjusted number of such securities
and kind of securities as would have been issuable as the result of such change
with respect to the Common Stock immediately prior to such reclassification
or
other change.
C. Stock
Splits, Combinations and Dividends. If the shares of Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, or
if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or
stock
dividend or proportionately increased in the case of combination of shares,
in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares
of
Common Stock outstanding immediately prior to such event.
D. Share
Issuance. So long as this Note is outstanding, if the Borrower shall issue
or
agree to issue any shares of Common Stock except for the Excepted Issuances
for
a consideration less than the Conversion Price in effect at the time of such
issue, then, and thereafter successively upon each such issue, the Conversion
Price shall be reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights
if
such issuance is at a price lower than the then applicable Conversion Price.
The
reduction of the Conversion Price described in this paragraph is in addition
to
other rights of the Holder described in this Note. “Excepted Issuances” means
any
proposed sale by the Borrower of its Common Stock or other securities or equity
linked debt obligations, except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities
or assets of corporation or other entity which holders of such securities or
debt are not at any time granted registration rights, (ii)
the
Borrower’s issuance of securities in connection with strategic license
agreements and other partnering arrangements so long as such issuances are
not
for the purpose of raising capital and which holders of such securities or
debt
are not at any time granted registration rights, (iii) the Borrower’s issuance
of Common Stock or the issuances or grants of options to purchase Common Stock
to employees, directors, and consultants, pursuant to plans described on
Schedule A, (iv) as a result of the exercise of the Warrants or conversion
of
the Notes, (v) an underwritten public offering in connection with not less
than
$10,000,000 of gross proceeds of such public offering and (vi) as otherwise
described on Schedule A.
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(d) Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring
such
adjustment.
(e) Borrower
will reserve from its authorized and unissued Common Stock the number of shares
of Common Stock required to satisfy in full its obligations under this Note.
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. Xxxxxxxx agrees that its issuance of
this
Note shall constitute full authority to its officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of Common Stock
upon
the conversion of this Note.
2.2 Method
of Conversion.
This
Note may be converted by the Holder in whole or in part as described in Section
2.1(a) hereof. Upon partial conversion of this Note, a new Note containing
the
same date and provisions of this Note shall, at the request of the Holder,
be
issued by the Borrower to the Holder for the principal balance of this Note
and
interest which shall not have been converted or paid.
2.3
Mandatory
Conversion.
Provided an Event of Default or an event which with the passage of time or
giving of notice could become an Event of Default has not occurred, unless
such
Event of Default has been cured not less than twenty (20) days prior to the
delivery of written notice by Borrower as hereinafter described, then, the
Borrower will have the option by written notice to the Holder (“Notice of
Mandatory Conversion”) of compelling the Holder to convert all or a portion of
the outstanding and unpaid principal of the Note and accrued interest, thereon,
into Common Stock at the Conversion Price then in affect (“Mandatory
Conversion”). The Notice of Mandatory Conversion, which notice must be given on
the first day following thirty (30) consecutive trading days (“Lookback Period”)
during which the closing price for the Common Stock as reported by Bloomberg,
LP
for the Principal Market shall be greater than two hundred percent (200%) of
the
Conversion Price each such trading day and during which thirty (30) trading
days, the average price/volume (i.e. shares traded multiplied by trade price)
as
reported by Bloomberg LP for the Principal Market is greater than $300,000.
The
date the Notice of Mandatory Conversion is given is the “Mandatory Conversion
Date.” The Notice of Mandatory Conversion shall specify the aggregate principal
amount of the Note which is subject to Mandatory Conversion. Mandatory
Conversion Notices must be given proportionately to all Holders of Notes who
received Notes similar in term and tenure as this Note. The Borrower shall
reduce the amount of Note principal and interest subject to a Notice of
Mandatory Conversion by the amount of Note Principal and interest for which
the
Holder had delivered a Notice of Conversion to the Borrower during the twenty
(20) trading days preceding the Mandatory Conversion Date. Each Mandatory
Conversion Date shall be a deemed Conversion Date and the Borrower will be
required to deliver the Common Stock issuable pursuant to a Mandatory Conversion
Notice in the same manner and time period as described in Section 2.2 above.
A
Notice of Mandatory Conversion may be given only in connection with an amount
of
Common Stock which would not cause a Holder to exceed the 4.99% (or if
increased, 9.99%) beneficial ownership limitation set forth in Section 2.4
of
this Note. A Notice of Mandatory Conversion may be given only in connection
with
Common Stock that has been included for resale in an effective Registration
Statement during the entire Lookback Period and the Mandatory Conversion
Date.
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2.4 Maximum
Conversion.
The
Holder shall not be entitled to convert on a Conversion Date that amount of
the
Note in connection with that number of shares of Common Stock which would be
in
excess of the sum of (i) the number of shares of Common Stock beneficially
owned
by the Holder and its affiliates on a Conversion Date and (ii) the number of
shares of Common Stock issuable upon the conversion of the Note with respect
to
which the determination of this provision is being made on a Conversion Date,
which would result in beneficial ownership by the Holder and its affiliates
of
more than 4.99% of the outstanding shares of Common Stock of the Borrower on
such Conversion Date. For the purposes of the provision to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited
to
aggregate conversions of only 4.99% and aggregate conversion by the Holder
may
exceed 4.99%. The Holder shall have the authority and obligation to determine
whether the restriction contained in this Section 2.4 will limit any conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
Notes are convertible shall be the responsibility and obligation of the Holder.
The
Holder may increase the permitted beneficial ownership amount up to 9.99% upon
and effective after 61 days prior written notice to the Borrower.
The
Holder may allocate which of the equity of the Borrower deemed beneficially
owned by the Holder shall be included in the 4.99% amount described above and
which shall be allocated to the excess above 4.99%.
2.5 Buy-In.
In
addition to any other rights available to the Holder, if the Borrower fails
to
deliver to the Holder such shares issuable upon conversion of a Note by the
Delivery Date and if after six (6) business days after the Delivery Date the
Holder or a broker on the Holder’s behalf purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a
sale by such Holder of the Common Stock which the Holder was entitled to receive
upon such conversion (a "Buy-In"), then the Borrower shall pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder)
the
amount by which (A) the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (B)
the
aggregate principal and/or interest amount of the Note for which such conversion
was not timely honored together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For
example, if the Holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion
of
$10,000 of note principal and/or interest, the Borrower shall be required to
pay
the Holder $1,000 plus interest. The Holder shall provide the Borrower written
notice and evidence indicating the amounts payable to the Holder in respect
of
the Buy-In.
ARTICLE
III
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event of Default") shall,
at the option of the Holder hereof, make all sums of principal and interest
then
remaining unpaid hereon and all other amounts payable hereunder immediately
due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:
3.1 Failure
to Pay Principal or Interest.
The
Borrower fails to pay any installment of principal, interest or other sum due
under this Note when due and such failure continues for a period of ten (10)
business days after the due date. The ten (10) day period described in this
Section 3.1 is the same ten (10)) business day period described in Section
1.1
hereof.
3.2 Breach
of Covenant.
The
Borrower breaches any material covenant or other material term or condition
of
this Note in any material respect and such breach, if subject to cure, continues
for a period of fifteen (15) business days after written notice to the Borrower
from the Holder.
5
3.3 Breach
of Representations and Warranties.
Any
material representation or warranty of the Borrower made herein or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith shall be false or misleading in any material respect as
of
the date made.
3.4 Receiver
or Trustee.
The
Borrower shall make an assignment for the benefit of creditors, or apply for
or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed without the consent of the Borrower is not dismissed within sixty
(60) days of appointment.
3.5 Judgments.
Any
money judgment, writ or similar final process shall be entered or filed against
Borrower or any of its property or other assets for more than $250,000, and
shall remain unpaid, unvacated, unbonded or unstayed for a period of forty-five
(45) days.
3.6 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance
of
any notice in relation to such event, for the relief of debtors shall be
instituted by or against the Borrower and if instituted against Borrower are
not
dismissed within sixty (60) days of initiation.
3.7 Delisting.
Failure
of the Common Stock to be listed for trading or quotation on a Principal Market
(which includes the Bulletin Board) for five or more consecutive trading
days.
3.8 Non-Payment.
A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $250,000 for more than thirty days after the due
date, unless the Borrower is contesting the validity of such obligation in
good
faith and has segregated cash funds equal to not less than one-half of the
disputed amount.
3.9 Stop
Trade.
An SEC
or judicial stop trade order or Principal Market trading suspension that lasts
for ten or more consecutive trading days.
3.10 Failure
to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to deliver Common Stock to the Holder pursuant to and in
the
form required by this Note, or, if required, a replacement Note more than seven
(7) Business Days after the required delivery date of such Common Stock or
Note.
3.11 Non-Registration
Event.
The
occurrence of a Non-Registration Event which in connection with a Filing Date
exists for at least thirty (30) days or which in connection with an Effective
Date exists for at least one hundred and fifty (150) days.
3.12 Reservation
Default.
Failure
by the Borrower to have reserved for issuance upon conversion of the Note the
amount of Common Stock as set forth in this Note.
3.13 Cross
Default.
A
default by the Borrower of a material term, covenant, warranty or undertaking
of
any other agreement to which the Borrower and Holder are parties, or the
occurrence of a material event of default under any such other agreement which
is not cured after any required notice and/or cure period.
6
ARTICLE
IV
SECURITY
INTEREST
This
Note
is secured by a security interest granted to the Collateral Agent for the
benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower
to Holder. The Borrower acknowledges and agrees that should a proceeding under
any bankruptcy or insolvency law be commenced by or against the Borrower, or
if
any of the Collateral (as defined in the Security Agreement) should become
the
subject of any bankruptcy or insolvency proceeding, then the Holder should
be
entitled to, among other relief to which the Holder may be entitled under this
Note and any other agreement to which the Borrower and Holder are parties
(collectively, "Loan Documents") and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section
362 to permit the Holder to exercise all of its rights and remedies pursuant
to
the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE
BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE,
THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE
ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.
The
Borrower hereby consents to any motion for relief from stay that may be filed
by
the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion
for
relief from stay filed by the Holder. The Borrower represents, acknowledges
and
agrees that this provision is a specific and material aspect of the Loan
Documents, and that the Holder would not agree to the terms of the Loan
Documents if this waiver were not a part of this Note. The Borrower further
represents, acknowledges and agrees that this waiver is knowingly, intelligently
and voluntarily made, that neither the Holder nor any person acting on behalf
of
the Holder has made any representations to induce this waiver, that the Borrower
has been represented (or has had the opportunity to he represented) in the
signing of this Note and the Loan Documents and in the making of this waiver
by
independent legal counsel selected by the Borrower and that the Borrower has
discussed this waiver with counsel.
ARTICLE
V
COVENANTS
For
so
long as this Note is outstanding, without the consent of a Majority in Interest
of the Holders, the Borrower will not and will not permit any of its
Subsidiaries to directly, or indirectly:
5.1
Limitation
on Liens and Incurrence of Debt.
Create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”) upon any of its property, whether now owned or
hereafter acquired except for: (A) the Excepted Issuances, (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith
and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business
in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing
of
the purchase of new property in the ordinary course of our business up to the
amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed
by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “Permitted Lien”) and (C)
indebtedness for borrowed money which is not senior or pari passu in right
of
payment to the payment of this Note or distribution of any assets of the
Borrower or such Subsidiary.
7
5.2 Certain
Amendments.
Except
for an increase in the authorized Common Stock of the Borrower or the filing
of
a certificate of designations with respect to any preferred stock of the
Borrower or in connection with a reverse stock split as approved by the
stockholders of the Borrower at its 2007 Annual Meeting, amend its certificate
of incorporation, bylaws or its charter documents so as to materially and
adversely affect any rights of any holder.
5.3 Certain
Payments.
Repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of Common Stock, preferred stock,
or
other equity securities of the Borrower other than to the extent permitted
or
required hereunder.
5.4 Related
Party Transactions.
Engage
in any transactions with any of its officers, directors, employees or
affiliates, including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any entity
in
which any such officer, director, or employee has a substantial interest or
is
an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary or consulting fees for services rendered
or
applicable placement agency fees, (ii) reimbursement for expenses incurred
on
our behalf, and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Borrower.
5.5 Repayment
of Debt.
Except
for any of the Borrower’s secured convertible bridge notes issued in certain
private placement transactions between December 2006 and May 2007 that remain
outstanding, prepay or redeem any financing related debt or past due obligations
outstanding as of the issue date of the Notes.
“Subsidiary”
means, with respect to any entity at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which more than 30% of
(i) the outstanding capital stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership
or
limited liability company or (iii) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such
trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity.
8
“Majority
in Interest” mean Holders who hold not less than fifty-one percent (51%) of the
outstanding principal amount of the Notes.
ARTICLE
VI
REGISTRATION
RIGHTS
6.1. Registration
Rights.
Subject
to receipt of the written consent of the holders of at least 51% of the total
shares of Common Stock issuable upon conversion of the outstanding notes under
the Borrower’s Subscription Agreements dated as of September 28, 2007,
the
Borrower hereby grants the following registration rights to holder of this
Note:
(i) On
one
occasion, for a period commencing one hundred and twenty-one (121) days after
the Issue Date, but not later than two years after the Issue Date, upon a
written request therefor from any record holder or holders of more than 50%
of
the shares of Common Stock issued and issuable upon conversion of the
outstanding 6% Secured Convertible Notes due December __, 2010 (the “Notes”) and
exercise of the Common Stock Purchase Warrants (the “New Warrants”) issued
concurrently to the Holders of the Notes on the Issue Date, the Borrower shall
prepare and file with the Securities and Exchange Commission (the “SEC”) a
registration statement under the Securities Act of 1933, as amended (the “1933
Act”) registering the Registrable Securities, as defined in Section 6.1(iv)
hereof, which are the subject of such request for unrestricted public resale
by
the holder thereof. For purposes of Sections 6.1(i) and 6.1(ii), Registrable
Securities shall not include securities which (A) are registered for resale
in
an effective registration statement, (B) are included for registration in a
pending registration statement, (C) have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act,
or (D) are not yet required to be included in a Registration Statement. Upon
the
receipt of such request, the Borrower shall promptly give written notice to
all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
days after the Borrower gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 6.1(i).
(ii) If
the
Borrower at any time proposes to register any of its securities under the 1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except in connection with (i) the registration
statements of the Borrower (File Nos. 333-128287, 333-133549, 333-115514,
333-119065, 333-121052, 333-122383 and 333-147265) on file with the SEC, (ii)
registration for resale of issuances pursuant to a private offering in
connection with not less than $3,000,000 of gross proceeds of such private
offering or (iii) with respect to registration statements on Forms S-4, S-8
or
another form not available for registering the Registrable Securities for sale
to the public, provided the Registrable Securities are not otherwise registered
for resale by the Holder pursuant to an effective registration statement, each
such time it will give at least five (5) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon
the
written request of the Holder, received by the Borrower within ten (10) days
after the giving of any such notice by the Borrower, to register any of the
Registrable Securities not previously registered, the Borrower will cause such
Registrable Securities as to which registration shall have been so requested
to
be included with the securities to be covered by the registration statement
proposed to be filed by the Borrower, all to the extent required to permit
the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the “Seller” or “Sellers”). In the event
that any registration pursuant to this Section 6.1(ii) shall be, in whole or
in
part, an underwritten public offering of common stock of the Borrower, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Borrower and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Borrower therein; provided, however, that the Borrower shall notify
the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 6.4 hereof, the Borrower may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 6.1(ii)
without thereby incurring any liability to the Seller.
9
(iii) If,
at
the time any written request for registration is received by the Borrower
pursuant to Section 6.1(i), the Borrower has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Borrower's own account and the Borrower actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 6.1(ii) rather than Section 6.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall be
governed by Section 6.1(ii).
(iv) The
Borrower shall file with the SEC a Form S-3 registration statement (the
“Registration Statement”) (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act within sixty (60) calendar days after the Issue Date (the
“Filing Date”), and cause the Registration Statement to be declared effective
not
later
than one hundred and twenty (120) calendar days after the Issue Date
(the
“Effective Date”). The Borrower will register not less than a number of shares
of Common Stock in the aforedescribed registration statement that is equal
to
100%
of
the shares of Common Stock issued and issuable upon conversion of all of the
Notes and exercise of the New Warrants together with a number of shares of
Common Stock equal to 100% of the shares of Common Stock issued and issuable
upon exercise of the Borrower’s outstanding Common Stock Purchase Warrants
issued between December 1, 2006 and June 4, 2007 with initial exercise prices
of
$0.09 (the “9 Cent Warrants”) and $0.20 per share (the “20 Cent Warrants” and,
together with the New Warrants and the 9 Cent Warrants, the “Warrants”). Such
shares of Common Stock issued and issuable in connection with the conversion
or
exercise, as applicable, of the Notes and Warrants are collectively referred
to
herein as the “Registrable Securities”. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of each Holder and holder
of
Warrants, pro rata,
and not
issued, employed or reserved for anyone other than each such Holder and Warrant
holder. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Borrower as necessary
to register additional shares of Common Stock to allow the public resale of
all
Common Stock included in and issuable by virtue of the Registrable Securities.
Except with the written consent of a Majority in Interest, no securities of
the
Borrower other than the Registrable Securities will be included in the
Registration Statement. It shall be deemed a Non-Registration Event if at any
time after the date the Registration Statement registering the Initial
Registrable Securities (as defined in Section 6.1(v)) is declared effective
by
the SEC (“Actual Effective Date”) the Borrower has registered for unrestricted
resale on behalf of the holders of Notes and Warrants for thirty or more
consecutive days less than the
amount of Common Shares required to be registered as described in this Section
6.
(v) The
amount of Registrable Securities required to be included in the initial
Registration Statement as described in Section 6.1(iv) (“Initial Registrable
Securities”) shall be not less than 100% of the maximum amount of Common Stock
which may be included in a Registration Statement without exceeding registration
limitations imposed by the SEC pursuant to Rule 415 of the 1933 Act (the “Rule
415 Amount”). In the event that less than all of the Registrable Securities are
included in the Registration Statement as a result of the limitation described
in this Section 6.1(v), then the Borrower will file additional Registration
Statements each registering the Rule 415 Amount (each such Registration
Statement a “Subsequent Registration Statement”), seriatim,
until
all of the Initial Registrable Securities have been registered. The Filing
Date
and Effective Date of each such additional Registration Statement shall be,
respectively, thirty (30) and ninety (90) days after the first day such
Subsequent Registration Statement may be filed without objection by the SEC
based on Rule 415 of the 1933 Act.
10
(vi) Unless
otherwise instructed in writing by a holder of Registrable Securities and only
if the initial Registration Statement does not include all of the Registrable
Securities, the Registrable Securities will be registered on behalf of each
such
holder in the Registration Statements based on Common Stock issuable upon
conversion or exercise of Notes and Warrants, in the following order and
priority:
(A) Notes
(B) Warrants
(vii) Priority
shall be given to Common Stock issuable upon conversion of actual outstanding
Notes ahead of shares of Common Stock issuable upon exercise of Warrants. The
foregoing notwithstanding, Registrable Securities shall be allocated and
registered pro rata among the holders of Notes and Warrants based upon their
holdings thereof.
6.2. Registration
Procedures.
If and
whenever the Borrower is required by the provisions of Section 6.1(i) or 6.1(ii)
to effect the registration of any Registrable Securities under the 1933 Act,
the
Borrower will, as expeditiously as possible:
(a) subject
to the timelines provided herein, prepare and file with the SEC a registration
statement required by Section 6 hereof with respect to such securities and
use
its best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby (determined
as
herein provided), promptly provide to the holders of the Registrable Securities
copies of all filings and SEC letters of comment and notify such holders (by
telecopier and by e-mail addresses provided by such holders) on or before the
first business day thereafter that the Borrower receives notice that (i) the
SEC
has no comments or no further comments on the Registration Statement, and (ii)
the registration statement has been declared effective (failure to timely
provide notice as required by this Section 6.2(a) shall be a material breach
of
the Borrower’s obligation and an Event of Default and a Non-Registration Event
as defined in Section 6.4;
(b) prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection therewith as may be necessary
to
keep such Registration Statement effective until such Registration Statement
has
been effective for a period of two (2) years, and comply with the provisions
of
the 1933 Act with respect to the disposition of all of the Registrable
Securities covered by such Registration Statement in accordance with the
Sellers’ intended method of disposition set forth in such Registration Statement
for such period;
(c) furnish
to the Sellers, at the Borrower’s expense, such number of copies of the
Registration Statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such Registration Statement or make them electronically available;
(d) use
its
commercially
reasonable best efforts to register or qualify the Registrable Securities
covered by such Registration Statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall request in writing,
provided, however, that the Borrower shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
11
(e) if
applicable, list the Registrable Securities covered by such Registration
Statement with any securities exchange on which the Common Stock of the Borrower
is then listed;
(f) notify
the Holder within twenty-four hours of the Borrower’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Borrower has knowledge as a result
of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to an SEC, state or other governmental order suspending the
effectiveness of the registration statement covering any of the Registrable
Securities;
(g) provided
same would not be in violation of the provision of the SEC’s Regulation FD, make
available for inspection by the Sellers, and any attorney, accountant or other
agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Borrower, and cause the Borrower's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such Registration Statement; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the SEC. Holder’s failure to
comment on any Registration Statement or other document provided to a Holder
or
its counsel shall not be construed to constitute approval thereof nor an
acknowledgement of the accuracy thereof.
6.3. Provision
of Documents.
In
connection with each registration described in this Section 6, each Seller
will
furnish to the Borrower in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
6.4. Non-Registration
Events.
The
Borrower and the Holder agree that the Sellers will suffer damages if the
Registration Statement is not declared effective by the SEC by the Effective
Date, and any registration statement required under Section 6.1(i) or 6.1(ii)
is
not filed within 60 days after written request and declared effective by the
SEC
within 150 days after such request, and maintained in the manner and within
the
time periods contemplated by Section 6 hereof, and it would not be feasible
to
ascertain the extent of such damages with precision. Accordingly, if (A) any
Registration Statement is not declared effective on or before the required
Effective Date, (B) due to the action or inaction of the Borrower the
Registration Statement is not declared effective within three (3) business
days
after receipt by the Borrower or its attorneys of a written or oral
communication from the SEC that the Registration Statement will not be reviewed
or that the SEC has no further comments, (C) if the registration statement
described in Sections 6.1(i) or 6.1(ii) is not filed within 60 days after such
written request, or is not declared effective within 150 days after such written
request, or (D) any registration statement described in Sections 6.1(i), 6.1(ii)
or 6.1(iv) is filed and declared effective but shall thereafter cease to be
effective for a period of time which shall exceed seventy-five (75) days in
the
aggregate per year (defined as every rolling period of 365 consecutive days
commencing on the Actual Effective Date (each such event referred to in clauses
A through D of this Section 6.4 is referred to herein as a "Non-Registration
Event"), then the Borrower shall deliver to the holder of Registrable
Securities, as liquidated damages (“Liquidated Damages”), an amount equal to one
percent (1%) for each thirty (30) days (or such lesser pro-rata amount for
any
period of less than thirty (30) days) of the principal amount of the outstanding
Notes and purchase price of shares of Common Stock issued upon conversion of
Notes and exercise of Warrants held by holders of Registrable Securities which
are subject to such Non-Registration Event. The Borrower must pay the Liquidated
Damages in cash. The Liquidated Damages must be paid within ten (10) days after
the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
SEC, then such Registration Statement will be deemed to have not been filed
and
Liquidated Damages will be calculated accordingly. All
oral
or written comments received from the SEC relating to the Registration Statement
must be satisfactorily responded to within
twenty (20) days after receipt of comments from the SEC. Failure
to
timely respond to SEC comments is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Borrower to the holders of
Registrable Securities at the same rate and amounts set forth above calculated
from the date the response was required to have been made.
12
6.5. Expenses.
All
expenses incurred by the Borrower in complying with Section 6 hereof, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of counsel and independent public accountants
for the Borrower, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state securities or “blue sky” laws, fees of
the Financial Regulatory Authority Inc., transfer taxes, and fees of transfer
agents and registrars, are called “Registration Expenses.” All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities are called "Selling Expenses." The Borrower will pay all Registration
Expenses in connection with each registration statement under Section 6. Selling
Expenses in connection with each registration statement under Section 6 shall
be
borne by the Seller and may be apportioned among the Sellers in proportion
to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may
agree.
6.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 6, the Borrower will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 6 hereof, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or
are based upon the omission or alleged omission to state therein a material
fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made, and will subject to the
provisions of Section 6.6(c) reimburse the Seller, each such underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Borrower shall not
be
liable to the Seller to the extent that any such damages arise out of or are
based upon an untrue statement or omission made in any preliminary prospectus
if
(i) the Seller failed to send or deliver a copy of the final prospectus
delivered by the Borrower to the Seller with or prior to the delivery of written
confirmation of the sale by the Seller to the person asserting the claim from
which such damages arise, (ii) the final prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (iii) to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by any such Seller, or any such controlling person in writing specifically
for
use in such registration statement or prospectus.
13
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to this Section 6, each Seller severally but not jointly will, to
the
extent permitted by law, indemnify and hold harmless the Borrower, and each
person, if any, who controls the Borrower within the meaning of the 1933 Act,
each officer of the Borrower who signs the registration statement, each director
of the Borrower, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Borrower or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to this Section 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or
are based upon the omission or alleged omission to state therein a material
fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Borrower and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller will
be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Borrower by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that
the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Registrable Securities pursuant to
such
registration statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 6.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 6.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 6.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
6.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
6.6;
then, and in each such case, the Borrower and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 1933 Act) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
14
6.7. Delivery
of Unlegended Shares.
(a) Within
four (4) business days (such fourth business day being the “Unlegended Shares
Delivery Date”) after the business day on which the Borrower has received (i) a
notice that shares of Common Stock held by Holder have been sold pursuant to
the
Registration Statement or Rule 144 under the 1933 Act, (ii) a representation
that the prospectus delivery requirements, or the requirements of Rule 144,
as
applicable and if required, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144, customary representation letters
of
the Holder and/or Holder’s broker regarding compliance with the requirements of
Rule 144, the Borrower at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Borrower to deliver to its transfer agent (with copies
to Holder) an appropriate instruction and opinion of such counsel, directing
the
delivery of shares of Common Stock without any legends purporting to restrict
transfers in compliance with the 1933 Act (the “Unlegended Shares”); and (z)
cause the transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the shares
of
Common Stock represented by such certificate, if any, to the Holder at the
address specified in the notice of sale, via express courier, by electronic
transfer or otherwise on or before the Unlegended Shares Delivery
Date.
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, upon
request of Xxxxxx, so long as the certificates therefor do not bear a legend
and
the Holder is not obligated to return such certificate for the placement of
a
legend thereon, the Borrower shall cause its transfer agent to electronically
transmit the Unlegended Shares by crediting the account of Xxxxxx’s prime broker
with the Depository Trust Company through its Deposit Withdrawal At Custodian
system. Such delivery must be made on or before the Unlegended Shares Delivery
Date.
(c) The
Borrower understands that a delay in the delivery of the Unlegended Shares
pursuant to this Section 6 later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to Xxxxxx. As compensation
to
Holder for such loss, the Borrower agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Holder for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery
Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Borrower fails to deliver
Unlegended Shares as required by this Section 6.7 for an aggregate of thirty
(30) days, then the Holder or assignee holding securities subject to such
default may, at its option, require the Borrower to redeem all or any portion
of
the shares of Common Stock subject to such default at a price per share equal
to
the greater of (i) 120%, or (ii) a fraction in which the numerator is the
highest closing price of the Common Stock during the aforedescribed thirty
day
period and the denominator of which is the lowest conversion or exercise price
during such thirty day period, multiplied by the aggregate conversion or
exercise price relating to such shares of Common Stock (“Unlegended Redemption
Amount”). The Borrower shall pay any payments incurred under this Section in
immediately available funds upon demand.
15
(d) In
the
event Holder shall request delivery of Unlegended Shares as described in this
Section 6.7 and the Borrower is required to deliver such Unlegended Shares
pursuant to this Section 6.7, the Borrower may not refuse to deliver Unlegended
Shares based on any claim that Holder or any one associated or affiliated with
such Holder has been engaged in any violation of law, or for any other reason,
unless, an injunction or temporary restraining order from a court, on notice,
restraining and or enjoining delivery of such Unlegended Shares shall have
been
sought and obtained by the Borrower or at the Borrower’s request or with the
Borrower’s assistance, and the Borrower has posted a surety bond for the benefit
of Holder in the amount of 120% of the amount of the aggregate purchase price
of
the shares Common Stock which are subject to the injunction or temporary
restraining order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder to the extent Holder obtains judgment in Xxxxxx’s
favor.
ARTICLE
VII
MISCELLANEOUS
7.1 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
7.2 Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur.
The
addresses for such communications shall be: (i) if to the Borrower to:
Xxxxxx
Products Corp., 00-00 Xxxxx 000, Xxxxxxxx, XX 00000, Attn: Xxxxxxx Kouninis,
Chief Financial Officer,
telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxxxxxxxxx
Xxxx
& Xxxxxxxxx LLP, 000 Xxxx X. Xxxxxxx Xxxxxxx, 0xx
Xxxxx,
Xxxxx Xxxxx, XX 00000, Attn: Xxxxxx X. Xxxxxxxx, Esq., telecopier: (000)
000-0000, and (ii) if to the Holder, to the name, address and telecopy number
set forth on the front page of this Note, with a copy by telecopier only to
Xxxxxxxx Xxxxx & Deutsch LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx
Xxxx 00000, telecopier number: (000) 000-0000.
7.3 Amendment
Provision.
The
term "Note" and all reference thereto, as used throughout this instrument,
shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented. The Holder by acceptance
hereof confirms such Xxxxxx’s agreement to the terms and conditions set forth
herein.
16
7.4 Assignability.
This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and assigns;
provided, however, that by acceptance of this Note, Xxxxxx agrees that it may
not and will not assign any portion of this Note to any competitor of Borrower
that is engaged in the manufacture, distribution or marketing of technology
inhibiting pathogenic bacteria.
7.5 Cost
of Collection.
If
default is made in the payment of this Note, Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys'
fees.
7.6 Governing
Law.
This
Note shall be governed by and construed in accordance with the laws of the
State
of New York, without regard to conflicts
of laws
principles that would result in the application of the substantive laws of
another jurisdiction. Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York or in the federal courts located in the state of New York. Both parties
and
the individual signing this Note on behalf of the Borrower agree to submit
to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney’s fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note. Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit
or
taking other legal action against the Borrower in any other jurisdiction to
collect on the Borrower’s obligations to Holder, to realize on any collateral or
any other security for such obligations, or to enforce a judgment or other
court
in favor of the Holder.
7.7 Maximum
Payments.
Nothing
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess
of
such maximum shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.
7.8. Construction.
Each
party acknowledges that its legal counsel participated in the preparation of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against
the other.
7.9 Shareholder
Status.
The
Holder shall not have rights as a shareholder of the Borrower with respect
to
unconverted portions of this Note. However, the Holder will have the rights
of a
shareholder of the Borrower with respect to the Shares of Common Stock to be
received after delivery by the Holder of a Conversion Notice to the
Borrower.
7.10 Remedies.
This
Note shall be deemed an unconditional obligation of Borrower for the payment
of
money and, without limitation to any other remedies available to Holder. This
Note may be enforced against Borrower by summary proceeding pursuant to N.Y.
Civil Procedure Law and rules Sect. 3213 or any similar rule or statute in
the
jurisdiction where enforcement is sought.
17
7.11 Non-Business
Days.
Whenever any payment to be made shall be due on a Saturday, Sunday or a public
holiday under the laws of the State of New York, such payment may be due on
the
next succeeding business day and such next succeeding day shall be included
in
the calculation of the amount of accrued interest payable on such
date.
IN
WITNESS WHEREOF,
Xxxxxxxx has caused this Note to be signed in its name by an authorized officer
as of the ____ day of December, 2007.
XXXXXX
PRODUCTS CORP.
|
|||
By:
|
|||
Name:
Xxxxx X. Xxxxx
|
|||
Title:
CEO and President
|
18
NOTICE
OF CONVERSION
(To
be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by Xxxxxx Products Corp. on ____________,
2007 into Shares of Common Stock of Xxxxxx Products Corp. (the "Borrower")
according to the conditions set forth in such Note, as of the date written
below.
Date
of
Conversion:____________________________________________________________________
Conversion
Price:______________________________________________________________________
Shares
To
Be
Delivered:_________________________________________________________________
Signature:____________________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_____________________________________________________________________________
____________________________________________________________________________
19
SCHEDULE
A
Currently
Outstanding Securities:
1.
|
Secured
Convertible Promissory Notes issued between December 1, 2006 and
May 1,
2007 for an aggregate principal amount of $572,383 (the “First Bridge
Notes”) convertible into 7,894,943 shares of Common
Stock
|
2.
|
Outstanding
warrants to purchase up to 34,972,728 shares of Common Stock issued
in
connection with the First Bridge
Notes
|
3.
|
Outstanding
warrants to purchase 1,000,000 shares of Common Stock issued in connection
with the Second Bridge Notes (Final share amount to be determined
based on
the pricing of the September new
cash)
|
4.
|
Outstanding
warrants to purchase 5,699,833 shares of Common Stock issued to Indigo,
for Placement Agent fee in connection with various financing
tranches
|
5.
|
Outstanding
warrants to purchase 20,497,200 shares of Common Stock issued in
connection with private placements prior to December 1,
2006
|
6.
|
Outstanding
warrants to purchase 48,405,000 shares of Common Stock issued to
employees, directors and consultants as
compensation
|
7.
|
Outstanding
warrants to purchase 50,000 shares of Common Stock issued to Xx.
Xxxxxxx
as part of the settlement in the Xxxxxxx-Xxxxxxxxx
litigation
|
8.
|
Outstanding
stock options to purchase 19,300,232 shares of Common Stock issued
to
employees, directors and consultants as
compensation
|
9.
|
Secured
Convertible Promissory Notes issued in connection with the qualified
financing (the “Qualified Financing”) on September 28, 2007 in the
aggregate principal amount of $3,450,000 convertible into 31,363,636
shares of Common Stock
|
10.
|
Qualified
Financing Warrants to purchase up to 32,343,515 shares of Common
Stock
|
11.
|
Warrants
to purchase 133,359 shares of Common Stock to be issued in connection
with
liquidated damages of the January 26, 2006 private
placement
|
12.
|
133,359
shares of Common Stock to be issued in connection with liquidated
damages
of the January 26, 2006 private
placement
|
13.
|
Notes
convertible into up to 34,972,728 shares of Common Stock and warrants
to
purchase up to 4,196,727 shares of Common Stock issued in connection
herewith
|
14.
|
Warrants
to purchase 8,808,929 shares of Common Stock to be issued to Indigo,
for
Placement Agent fee in connection with various financing
tranches
|
20
15.
|
Warrants
to purchase 3,000,000 shares of Common Stock to be issued to Greenbridge
as a fee in connection with the Greenbridge Line of
Credit
|
16.
|
3,298,206
shares of Common Stock for possible conversion of the November 2002
promissory note in the amount of $593,034 of principal and
interest
|
17.
|
Issuances
made pursuant to a private offering whereby the offering is no less
than
$3,000,000
|
18.
|
Pursuant
to the 2006 Stock Plan, 2,500,000 shares reserved for issuance upon
the
exercise of stock options to be granted in the
future
|
19.
|
4,545,455
Shares of Common Stock to be issued upon conversion of 6% Notes and
warrants to purchase 2,746,666 shares of common stock, issued in
connection with the Qualified
Financing
|
20.
|
Warrants
to purchase 4,500,000 shares of Common Stock to be issued to employees,
directors and consultants as
compensation
|
21